Hong Kong-listed Link Real Estate Investment Trust made its green bond market debut on Thursday with a $500 million issue, which priced through its secondary market curve.
The combination of fairly aggressive pricing and a more subdued credit market backdrop led to an order book that peaked at $2 billion, according to one syndicate banker. This was not quite as impressive as order books earlier this week but still a healthy four times oversubscribed.
The A2/A rated deal was initially marketed at 165bp over Treasuries before indicative pricing was tightened to between 145bp and 150bp over.
Final pricing was fixed at 99.123% on a coupon of 2.875% to yield 2.977% or 145bp over Treasuries. The issuance vehicle was Link Finance (Cayman) with a guarantee by Link Holdings.
Fair value calculations were complicated by the fact that Link Reit’s outstanding shorter-dated bond is trading at a wider level than a recent transaction by fellow Hong Kong property company Swire Properties, which issued a $500 million transaction in January.
Link Reit has a 3.6% September 2024 bond outstanding. Syndicate bankers said it was trading at 138bp over Treasuries or a G-spread of 148bp at the time of pricing on Thursday.
On this basis, a two-year longer deal has come 3bp through secondary market levels.
However, one notch lower rated Swire Properties has a 3.625% January 2026 bond outstanding. This was trading at 133bp over Treasuries, or a G-spread of 135bp, on Thursday, some 10bp tighter than Link Reit's new bond.
Swire Properties has the same rating as Link Reit from Moody's but a one-notch lower rating from Standard & Poor's. In a research note ahead of pricing, Mizuho suggested a new July 2026 Swire deal should price around the 150bp level. On a ratings basis alone, Link Reit should theoretically price inside of Swire.
However, as one syndicate banker commented, "it's hard to argue this point when there's an existing bond pointing in a different direction."
The banker added that a few dedicated green bond funds participated in the deal alongside a number of institutions that have green funds but invested through their standard portfolios.
Link Reit recently announced strong year-end results with distributable income rising 11% to HK$4.63 billion ($597 million) and distributions per unit by 13% to HK$2.06. Gearing also remains low at 16.5%, although up from an all-time low of 11% in 2014.
However, the results were overshadowed by comments from Hong Kong's Chief Executive CY Leung, who said the government has not promised the company a monopoly on the city's shopping malls and argued that it needs to start thinking more about its social responsibilities towards its public housing tenants rather than simply leasing facilities at the highest price to owners who then force out small tenants.
Local newspapers have suggested CY Leung has been taking leaf out of Donald Trump's populist handbook at a time when his poll ranking is extremely low. In a statement, the company responded that its main responsibility is to unit holders.
The government's ability to intervene is also limited by the fact that it no longer has any stake in the company, which has a 100% freefloat following its 2005 initial public offering.
The controversy has also not dented its outstanding 2024, which has traded up five points from a mid-March low cash price of 100.7%.
Link Reit's new green bond also represents an attempt to run its business along more environmentally friendly and sustainable grounds. Proceeds from the deal, which has received a second opinion from Sustainalytics, will be deployed along six lines: staff, corporate governance, environment, branding, tenants and community.
New initiatives include a targeted 30% improvement in its energy efficiency by 2020 and new systems to reduce its carbon footprint. In its offering circular, it notes that buildings and particularly their air-conditioning units cause 60% of Hong Kong's greenhouse gases.
Use of proceeds will be detailed on a separate corporate sustainability website and projects will be chosen by a committee from the company's sustainability and treasury team
Joint global co-ordinators for the bond deal were: HSBC, Bank of America Merrill Lynch, Bank of China and JP Morgan. HSBC and Bank of America were also green bond advisors.
